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When Intel and Advanced Micro Devices, the two largest suppliers of x86 processors for PCs and servers, report their 2008 third-quarter financial results in a few days, industry watchers will be looking for signs of how those numbers will reflect the ongoing financial crisis and its impact on the IT industry in the coming months.
Intel will report its third-quarter results after the markets close on Oct. 14, with AMD to follow on Oct. 16. While it is still too soon to tell how the credit crunch in the United States and the financial crisis will play out, financial analysts have started to cut their forecasts for IT spending and PC sales, which could have an impact on what Intel and AMD report later this month and offer some insight into what the two companies will forecast for 2009.
“Our core assumption is that IT spending continues to decelerate and year-over-year growth on a global basis moves into negative territory in the fourth quarter before an inflection point is reached in mid-2009,” Brian Alexander, an analyst with Raymond James, wrote in an Oct. 10 research note. “By geography, we assume that the U.S. declines in the low- to mid-single digits, Europe in the mid-single digits and Asia Pacific and Latin American grow in the mid-single digits.”
In the past week, several reports have indicated that there are troubling signs for Intel, AMD and the entire semiconductor industry. On Oct. 9, iSuppli cut its overall revenue forecast for the industry, citing drops in consumer spending and the financial crisis.
While Intel and AMD closed their third-quarter sales periods before the U.S. and other stock markets began their downward slide in late September and early October, the forecasts that these two companies offer will tell a lot about demand for chips as well as all other types of IT equipment, including PCs and servers.
“Given recent job loss in the U.S. corporate market and likely job loss in Europe, corporations in these markets will buy fewer PCs during the coming year,” Richard Gardner, an analyst with Citigroup Global Market, wrote in an Oct. 7 research note. “In addition, corporations tend to push out upgrades for remaining employees as corporate profit margins come under pressure.”
Forecast Is Key
Although Intel may offer good quarterly numbers, analysts will look at the company’s forecast for the fourth quarter of this year and then into 2009 to see if there are any hints about buying patterns and demand for IT hardware. Intel will likely not offer many specifics but offer a more general guideline, which could at least offer a model of what their customers are buying and how much demand there is for Intel processors.
“People are going to pay attention to the forecast,” said John Spooner, an analyst at Technology Business Research. “Intel will probably try and limit the amount of discussion on 2009 and try to focus on the fourth quarter…they [Intel] will probably temper everything by saying things are very uncertain now. Intel is going to talk about baseline demand and what they are seeing in the market right now and they will then base whatever projections they have off of that.”
If Intel does begin to see its sales slow down, the company could then turn around and cut chip prices, which could then help push more of its inventory out the door. It also is likely that Intel will not cut back on its research and development spending since new technology and innovations keep the company moving forward.
Analysts are looking for Intel to post earnings of 34 cents per share with revenue of $10.27 billion. In the third quarter of 2007, Intel posted earnings of 31 cents with revenue of $10.09 billion.
While Intel is a reliable bellwether to determine what businesses are spending or will spend on IT equipment, AMD is more reliant on consumer spending, especially when it comes to sales of desktops.
AMD has suffered through seven straight quarterly losses at this point. Analysts are also expecting the company to sustain another financial loss this quarter. Estimates are calling for AMD to lose 40 cents a share with revenue of $1.4 billion. A year ago, AMD posted a loss of 49 cents a share with revenue of $1.6 billion.
In the week leading up to its financial statement, AMD also made a major announcement this week that it will spin off its manufacturing facility into a new company and it will receive an infusion of cash while pushing some of its debt off to the new company. While this is an important step for AMD to recover from its debt, it’s not likely to impact its third-quarter results.
What is more important for AMD, and for the IT industry, is sales and shipments of its quad-core Opteron processor for high-end systems as well as sales of tri- and quad-core Phenom chips for desktops. Analysts will also see how the company’s Radeon graphics sold during the quarter since the third quarter is typically the best time of year for graphics card sales.